Regular savings accounts
A regular savings account could offer you a higher interest rate than other accounts, but you’ll need to put in a certain amount of money each month. Read our guide to help you decide if a regular saver is right for you.
Regular savings accounts
If you like the idea of putting away some money each month, then a regular savings account could earn you a higher rate of interest.
It’s a good way to start building a nest egg and get you into the saving habit. But you’ll need to be disciplined and commit to putting in a minimum amount each month.
Let’s take a closer look to help you decide if a regular savings account might be right for you.
What is a regular savings account?
A regular savings account offers a way to save little and often. You commit to depositing a small sum of money each month, up to a maximum amount. In return, you could get a higher interest rate than you would with an ordinary savings account.
Most providers will only let you open a regular saver account if you’re an existing customer who already has a current account with them. But a few are open to all and can be easily managed online.
Who are regular savings accounts for?
A regular savings account might be a good option for you if you:
- Want to build up a nest egg
- Want to get into the habit of saving a small amount each month
- Are saving up for a special event like a holiday or wedding
- Want more interest than you can get with an ordinary savings account.
Regular savings accounts tend to have stricter terms and conditions than a straightforward easy-access savings account – for example, most regular savers have rules on how much you can put in and take out.
You’ll need to be disciplined and commit to saving for it to work for you. A regular savings account probably isn’t a good idea if you can’t afford to set aside money each month. It’s also not the ideal place to keep emergency funds if you need to get your hands on your money quickly.
How does a regular savings account work?
Regular savings accounts are for putting away specific amounts each month for a fixed period. Each account will have slightly different requirements and some providers are stricter than others about sticking to the rules. But, typically:
- You'll need to deposit a minimum amount each month, which could be as little as £10.
- There’s a maximum monthly deposit limit, which could be anything from £50 up to £500.
- With some accounts, you might have to save the same amount each month.
- You may have to set up a standing order to transfer the cash from your current account.
- Most regular savers only last for a limited period, most commonly a year.
- Some banks may close your account if you don’t make the required monthly deposit – others let you skip one or two months without penalty.
- Some allow you to take money out, but they might lower your interest rate – others don’t allow you to make any early withdrawals at all.
It’s important to read the terms and conditions carefully before choosing the best monthly savings account for you, especially if:
- You’re not sure how much deposit you can commit to each month.
- You may need access to your money while you’re saving.
If you’d prefer to have more flexibility in how much you save and when you can take the money out, an easy access savings account might be a better option for you.
How much interest can I earn with a regular savings account?
Regular savers can be fixed or variable. The highest AERs (interest rates) tend to be variable, but this means the interest rate could go down as well as up. A fixed-rate account gives you more certainty, but the interest rate offered might be slightly lower.
Important note: the actual interest you’ll earn will be about half the given rate. That’s because the interest is worked out periodically over the months you save. It’s based on the money in your account at the time, not the final lump sum.
For example:
You open a regular savings account offering 3% interest, then deposit £100 each month over the next 12 months.
At the end of the term you might expect to have £1,200, plus £36 in interest.
In reality, you may only have earned half that amount – around £18.
This is because you’ll have only had the full £1,200 in your account during the last month. In the first month you’ll only earn interest on £100, and so on as the amount grows over the year.
How can I get the best regular savings rates?
The top regular savings accounts are usually reserved for existing customers. It’s one of the ways that banks and building societies reward loyalty.
But you can also get monthly savings accounts with decent rates that are open to all. Just be aware that the best regular savings accounts often have the strictest requirements – for example, the interest rate might be reduced if you don’t save every month or if you need to make a withdrawal.
Regular saver accounts are ideal for maximising your returns in the short term. But other types of account will usually have much more generous limits for long-term saving. So always compare savings accounts and their features thoroughly before you decide which is right for you.
How much do I have to save into a monthly savings plan?
It depends on the account you choose. Most expect a minimum deposit of at least £10 a month, while some insist you save the same amount each month.
If you’re confident you can put in a decent amount each month, it’s worth looking for a bank that offers a higher monthly limit, even if the interest is slightly lower – better 1% AER (annual equivalent rate) on £500 than 2% AER on just £50.
Some banks let you skip a couple of months without it affecting your interest – others might cut your interest or even close your account if you miss a monthly payment.
| Top tip If you have got a large lump sum to invest, you can put it into an easy-access account that starts paying interest straight away. You can then transfer small amounts over to your regular savings account each month. That way, you’ll earn interest on the lump sum, while benefiting from a higher rate on the money you put into the regular saver |
What are the alternatives to a regular savings account?
A regular savings account isn’t for everyone. If you want more flexibility and easy access to your money, while still earning interest, here are a few alternatives to consider:
- Instant access savings account – interest rates are typically lower, but you can take your money out whenever you want.
- High interest current account – an everyday bank account with a debit card for spending that also pays you interest on your credit balance. You’ll usually have to pay in a certain amount each month to earn the rate though.
- Cash ISA – a tax-free savings account. If you’re not prepared to lock away your money for 12 months in an ISA regular savings account, look for a flexible ISA. This allows you to withdraw your cash without losing your tax-free allowance.
Find out more about different ways to save.
Frequently asked questions
How long will I get the advertised rate for?
Most regular savings accounts only offer the headline rate for a year, sometimes two. Once the deal is over, your money is likely to be moved to your current account or an easy access savings account, which may offer no or very little interest.
Also be aware that variable interest rate accounts can go up and down. Keep an eye on your savings and be ready to switch accounts if the rate drops or you’re coming to the end of your deal.
How will my savings be taxed?
UK taxpayers have a Personal Savings Allowance , which means you can earn a certain amount in interest on your savings without having to pay tax on it.
- If you’re a basic taxpayer (20%), you can earn up to £1,000 in interest each year without having to pay tax on it.
- If you’re a higher-rate taxpayer (40%), you can earn up to £500 in interest each year without having to pay tax on it.
Although interest rates have been steadily rising over the past year or so, it’s very unlikely you’d have to pay any tax on a regular savings account. That’s because the balance won’t be nearly big enough to earn that much interest.
What’s the difference between a regular saver and an ISA?
The main difference is the amount you can deposit. With an ISA, you can save up to £20,000 a year. But the limits are much smaller with regular savings accounts. You may only be able to pay in, say, £150 a month.
You’ll also never pay tax on an ISA, although it’s unlikely you’ll be taxed on a regular savings account either as you can earn up to £1,000 in interest tax-free.
Do I have to save each month?
Check out the rules. Some banks let you skip a couple of months without it affecting your interest – others might cut your interest or even close your account if you miss a monthly payment.
How many regular savings accounts can I have?
You can have more than one regular savings account, but not usually with the same provider. Most banks only let you open one regular saver with them at a time.
Do regular savings accounts have compound interest?
Yes, many do. Compound interest is interest earned on interest. Sounds confusing? Say, for example, you put away £150 a month at an AER of 6%. If the interest isn’t compounded, you’ll have a total of £1,858 after a year. But if the interest is compounded, you’ll have £1,859.83.
As you can see, to really benefit from compound interest, you’d need an account where you can let your savings grow over several years.
Is my money safe in a regular savings account?
Yes, savings up to £85,000 are protected under the Financial Services Compensation Scheme. The amount you could save in a regular savings account will be nowhere near that, so your money isn’t at risk if your provider runs into financial difficulties.
Can I get regular savings accounts for my kids?
Yes. While there isn’t a huge amount of choice, it is possible to find children’s monthly savings accounts with competitive interest rates. You can typically save between £10 and £100 a month until the fixed term ends after a year.